U.S. home prices plummet

Wednesday

Nov 28, 2007 at 12:01 AMNov 28, 2007 at 11:50 AM

NEW YORK -- U.S. home prices fell 4.5 percent in the third quarter from a year earlier, the sharpest drop since Standard & Poor's began its nationwide housing index in 1987 and another sign that the housing slump is far from over, the research group said yesterday.

NEW YORK -- U.S. home prices fell 4.5 percent in the third quarter from a year earlier, the sharpest drop since Standard & Poor's began its nationwide housing index in 1987 and another sign that the housing slump is far from over, the research group said yesterday.

One of the index's creators also predicted a significant chance of a recession as the economy contends with falling housing prices, spiking foreclosures and turmoil in the financial markets.

The odds for a recession are "over 50 percent," said Robert Shiller, chief economist for MacroMarkets LLC. Other economists have put the chance of recession at one in three.

"We're in the aftermath of the biggest housing boom in history, so how do we use historical data to judge the outcome?" he said. "We're out of the range of the normal variation in the data, and I take that as very significant."

The S&P/Case-Shiller quarterly index tracks prices of existing single-family homes across the nation compared with a year earlier.

The index also showed that prices fell 1.7 percent from the previous three-month period, the largest quarter-to-quarter decline in the index's history.

In central Ohio, home prices dipped 0.9 percent in October, the Columbus Board of Realtors said yesterday. The average sale price of $164,844 along with a 10 percent drop in sales produced a total dollar volume in October of $294.1 million, down 10.8 percent from a year earlier.

Through October, the average price of a home was down 1.5 percent, as sales and total dollar volume also declined.

The board said new residential listings declined in October for the third straight month. Still, listings totaled 18,383 in October, up 3.6 percent over October 2006. Listings topped 20,000 in July.

"As the listing pace slows inventory levels will drop, and home prices will rise again as the market begins to correct itself," said Brad Bennett, board president.

That probably won't happen for a while. After 13 years of rising home values -- with the greatest increases occurring in the first part of this decade -- the housing market has started to unravel, spreading from Main Street to Wall Street.

Declines in housing prices have kept homeowners, especially those with riskier mortgages and spotty credit, from refinancing, sending them into default and foreclosure at a quickening pace. More foreclosed properties have added to an already ballooning inventory of homes on the market, further depressing values.

Investors holding securities backed by mortgages have taken billions of dollars in losses as they rewrite the value of defaulting assets. Spooked, they have stopped funding mortgages, hurting lenders' ability to issue new loans and shrinking demand.

The Federal Reserve has stepped in, cutting interest rates two consecutive times -- once by a half-point in September and by a quarter-point in October-- to 4.5 percent to encourage economic expansion. The Fed said last week it expects the housing slump and credit crisis to slow economic growth and push unemployment up slightly next year.

A separate S&P index covering 20 U.S. metropolitan areas showed a home price drop of 4.9 percent in September from a year earlier. Five metro areas -- Atlanta; Charlotte, N.C.; Dallas; Portland, Ore.; and Seattle -- showed an increase in prices, but S&P noted that the pace of their increases is slowing.

Tampa and Miami led the index with the biggest year-over-year declines at 11.1 percent and 10 percent, respectively. It also showed drops in San Diego of 9.6 percent; Detroit, 9.6 percent; Las Vegas, 9 percent; Phoenix, 8.8 percent; and Los Angeles, 7 percent.

On Thursday, the Washington-based Office of Federal Housing Enterprise Oversight is to release its third-quarter index of U.S. home prices.

Unlike the S&P index, the government's calculation of home prices has remained in positive territory. It is calculated based solely on loans of $417,000 or less that are bought or backed by government-sponsored mortgage companies, Fannie Mae and Freddie Mac -- excluding many of the riskier loans that have gone bad this year.

Dispatch reporter Mike Pramik contributed to this story.

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